Question

Park Corporation is planning to issue bonds with a face value of $2,400,000 and a coupon rate of 9 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 7.5 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

Required:

1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

semiannual Interest = 2400000*.09*6/12 = 108000

semiannual months = 10*2 =20

semiannual yield= 7.5*6 /12 = 3.75%

Price =[PVA 3.75%,20 *interest ] +[PVF 3.75%,20 *Face value]

       = [13.89620*108000]+[.47889*2400000]

      = 1500789.6+ 1149336

     = 2650125.6   [rounded to 2,650,126]

Dae	Account title	Debit	credit
jan 1	cash	2,650,126
	Bond payable		2,400,000
	premium on bond payable		250,126